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The Revenue Act of was passed as an emergency and temporary war-time tax. It copied a relatively new British system of income taxation, instead of trade and property taxation. The first income tax was passed in After the Civil War, Reconstruction , railroads, and transforming the North and South war machines towards peacetime required public funding.
However, in , seven years after the war, lawmakers allowed the temporary Civil War income tax to expire. Income taxes evolved, but in the Supreme Court declared the Income Tax of unconstitutional in Pollock v. United States. In , with the election of President Theodore Roosevelt , and later his successor William Howard Taft , the United States saw a populist movement for tax reform.
This movement culminated during then candidate Woodrow Wilson 's election of and in February , the ratification of the Sixteenth Amendment to the United States Constitution :. The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
This granted Congress the specific power to impose an income tax without regard to apportionment among the states by population. By February , 36 states had ratified the change to the Constitution.
It was further ratified by six more states by March. Of the 48 states at the time, 42 ratified it. Connecticut, Rhode Island, and Utah rejected the amendment; Pennsylvania, Virginia, and Florida did not take up the issue. Though the constitutional amendment to allow the Federal government to collect income taxes was proposed by President Taft in , the 16th Amendment was not ratified until , just before the start of the First World War.
In the first edition of the form was introduced. In the first year after ratification of the 16th Amendment, no taxes were collected. Instead, taxpayers simply completed the form and the IRS checked the form for accuracy. The IRS's workload jumped by ten-fold, triggering a massive restructuring. Professional tax collectors began to replace a system of "patronage" appointments.
The IRS doubled its staff, but was still processing returns in In the IRS was tasked with enforcement of laws relating to prohibition of alcohol sales and manufacture ; this was transferred to the jurisdiction of the Department of Justice in After repeal in , the IRS resumed collection of taxes on beverage alcohol. This act included a special wartime surcharge. The number of American citizens who paid income tax increased from about 4 million in to over 42 million by In , after a series of politically damaging incidents of tax evasion and bribery among its own employees, the Bureau of Internal Revenue was reorganized under a plan put forward by President Truman , with the approval of Congress.
The reorganization decentralized many functions to new district offices which replaced the collector's offices. Civil service directors were appointed to replace the politically appointed collectors of the Bureau of Internal Revenue. Not long after, the Bureau was renamed the Internal Revenue Service. The Internal Revenue Service Restructuring and Reform Act of "RRA 98" changed the organization from geographically oriented to an organization based on four operating divisions.
Enforcement activities declined. The IRS Oversight Board noted that the decline in enforcement activities has "rais[ed] questions about tax compliance and fairness to the vast majority of citizens who pay all their taxes.
Internal Revenue Service
It was signed into law by President Trump on December 22, In the fiscal year, the IRS had 76, employees conducting its work, a decrease of From the s through the s, the IRS began using technology such as microfilm to keep and organize records. Access to this information proved controversial, when President Richard Nixon 's tax returns were leaked to the public. His tax advisor, Edward L. Morgan, became the fourth law-enforcement official to be charged with a crime during Watergate. John Requard, Jr.
In his words: "We went after people for nickels and dimes, many of them poor and in many cases illiterate people who didn't know how to deal with a government agency. I've earned everything I've got. So controversial was this leak, that most later US Presidents released their tax returns though sometimes only partially.
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These returns can be found online at the Tax History Project. By the end of the Second World War, the IRS was handling sixty million tax returns each year, using a combination of mechanical desk calculators, accounting machines , and pencil and paper forms. In punch card equipment was used. The first trial of a computer system for income tax processing was in , when an IBM installed at Kansas City processed 1.
The Social Security number was used for taxpayer identification starting in By , all returns were processed by computer and punched card data entry was phased out. Information processing in the IRS systems of the late s was in batch mode; microfilm records were updated weekly and distributed to regional centers for handling tax inquiries. A project to implement an interactive, realtime system, the "Tax Administration System", was launched, that would provide thousands of local interactive terminals at IRS offices.
However, the General Accounting Office prepared a report critical of the lack of protection of privacy in TAS, and the project was abandoned in In , the IRS began to use the public Internet for electronic filing. Since the introduction of e-filing, self-paced online tax services have flourished, augmenting the work of tax accountants, who were sometimes replaced. In , the IRS struck a deal with tax software vendors: The IRS would not develop online filing software and, in return, software vendors would provide free e-filing to most Americans. Fraudulent claims were made with the use of stolen taxpayer identification and Social Security numbers, with returns sent to addresses both in the US and internationally.
In September , IRS Commissioner John Koskinen expressed concern over the organization's ability to handle Obamacare and administer premium tax credits that help people pay for health plans from the health law's insurance exchanges.
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It will also enforce the law's individual mandate , which requires most Americans to hold health insurance. Koskinen predicted the IRS would shut down operations for two days later this year which would result in unpaid furloughs for employees and service cuts for taxpayers. As early as the year , the Bureau of Internal Revenue began using the name "Internal Revenue Service" on at least one tax form. The s saw a reorganization of the IRS.
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A bipartisan commission was created with several mandates, among them to increase customer service and improve collections. It currently operates five submission processing centers which process returns sent by mail and returns filed electronically via E-file. Different types of returns are processed at the various centers with some centers processing individual returns and others processing business returns. Originally, there were ten submission processing centers across the country.
Rettig of California. There have been 48 previous commissioners of Internal Revenue and 28 acting commissioners since the agency's creation in No IRS commissioner has served more than five years and one month since Guy Helvering, who served 10 years until Bush and served for five years.
The Independent Office of Appeals is an independent organization within the IRS that helps taxpayers resolve their tax disputes through an informal, administrative process. Its mission is to resolve tax controversies fairly and impartially, without litigation. Resolution of a case in Appeals "could take anywhere from 90 days to a year. The current chief is Donna C. OPR investigates suspected misconduct by attorneys, CPAs and enrolled agents "tax practitioners" involving practice before the IRS and has the power to impose various penalties.
OPR can also take action against tax practitioners for conviction of a crime or failure to file their own tax returns. According to former OPR director Karen Hawkins, "The focus has been on roadkill - the easy cases of tax practitioners who are non-filers. The current acting director is Elizabeth Kastenberg. For fiscal year , the U. This is partially due to the nature of the individual income tax category, containing taxes collected from working class, small business, self-employed, and capital gains. The gross tax gap is the amount of true tax liability that is not paid voluntarily and timely.
The net tax gap is the gross tax gap less tax that will be subsequently collected, either paid voluntarily or as the result of IRS administrative and enforcement activities; it is the portion of the gross tax gap that will not be paid. In September , the IRS started to outsource the collection of taxpayers debts to private debt collection agencies. Opponents are also worried about the agencies' being paid on percent collected, because it will encourage the collectors to use pressure tactics to collect the maximum amount. IRS spokesman Terry Lemons responds to these critics saying the new system "is a sound, balanced program that respects taxpayers' rights and taxpayer privacy.
In March , the IRS announced that it would no longer outsource the collection of taxpayers debts to private debt collection agencies. The IRS decided not to renew contracts to private debt collection agencies, and began a hiring program at its call sites and processing centers across the country to bring on more personnel to process collections internally from taxpayers.